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The slowdown of the Hong Kong economy appears to be continuing, but the downturn has been milder than many had expected. Consumption momentum remains largely intact, thanks to tight labor market conditions and strong inbound tourism. Recent trade data also seem to be supportive for Q4 growth.
Going forward, global risks are rising, including the European debt predicament, deficit reduction in the US, and potential financial market volatility, which could dampen the growth outlook of the territory.
Hong Kong’s purchasing managers’ index (PMI) has stayed in contraction territory for four straight months, suggesting that gusty external headwinds might also squeeze local investment spending. Overall growth numbers will likely turn worse in 1Q12 before turning better. However, given that the global economic problems are structural and therefore could not be resolved easily, Hong Kong’s expected recovery in 2H12 is unlikely to be swift. For 2012 as a whole, we expect Hong Kong’s economic growth and inflation to ease to an average of 4% and 4.5% respectively. |
Consumption Momentum Remains Largely Intact
While the growth of consumer spending is on a moderating trend, the pace of slowdown seems to be milder than many had expected. Retail sales value rose 23.1% in October, a modest slowdown compared with the 24.1% increase in September. In real terms, retail sales growth stayed steady at 15.0% in October.
Among the sub-segments, sales of jewellery and watches continued to be the areas of strength, in terms of both value (+47.5%) and volume (+31.0%). The clothing, footwear and allied products (+26.3%) and consumer durable goods (+20.2%) segments also did well in October. Strong visitor arrivals, which grew at a stellar pace of 16.4% in October, offered major support to sales of jewellery and other high-end consumer goods. Indeed, tourists now play a more important role in the retail sector than a decade before. Tourist spending on shopping accounted for about one-third of retail sales last year, compared with less than 12% in 2000. We believe inbound tourism could provide some buffer to Hong Kong’s domestic spending next year, underpinned by further extension of the individual travel scheme and stronger purchasing power of Asian visitors amidst a weaker Hong Kong dollar.
On the other hand, other items saw more headwinds in recent months. Sales of supermarket and department store advanced 13.1% and 17.4% in October respectively, slower than the 15.5% and 21.6% in the previous month. The moderation of local consumer sales is consistent with the prevailing vigilance among Hong Kong residents, who are more exposed to the volatile financial market conditions and lackluster property sector activities lately.
The slight deterioration in labour market conditions is more of a concern. The seasonally adjusted unemployment rate edged up for a second month in a row to 3.4% in September-November. Yet, at this point, there is little evidence that companies are seeking to lay off staff on a large scale. The number of employed workers remained at a record high in November, even as local employers have become more hesitant in hiring amid the global uncertainty.
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